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KYC, Formalising Business: 5 Things To Consider Before Applying For Business Loan

Business Loan KYC: For entrepreneurs, formalising the business is essential to securing credit.

For new entrepreneurs, business loans are a great source of finance and essential financial tool that can help them to achieve their goals. Moreover, business loans also help them to take their company forward and get their businesses off the ground. Business loans help them in buying equipment, renting a space, or hiring staff.

Broadly speaking, business loans are of a great source of funding for businesses of all sizes in India. However, a detailed and well-thought-out plan is crucial for new entrepreneurs before securing a loan. The plan includes information about the business, market research, financial projections, and a repayment plan. Check here 5 things that you can consider before applying for any business loan.

Formalise Business Crucial

For entrepreneurs, formalising the business is essential to securing credit. The banks want you to establish your ownership and know your credibility as an entrepreneur before they move ahead with the process of issuing a business loan. Formalising a business gives you a clearer picture of your business’s financial history and stability which is important factors for lenders.

Get KYC Updated

While applying for a loan, you need to have all your KYC documents in place and updated. Updated KYC prevents financial fraud and money laundering, hence banks and other financial institutions are required by law to comply with it and obtain certain documents from their customers.

Moreover, some banks also need additional paperwork such as bank statements, income tax returns, and salary slips to assess your creditworthiness.

Go For RBI-registered Lenders

The proliferation of instant loan apps in recent years in the country has resulted in many borrowers being misled with incorrect interest rates. To stay away from such lenders, it is advisable to opt for lenders that are registered with the Reserve Bank of India (RBI).

Don’t Approach Multiple Lenders

As a new entrepreneur, if you are in urgent need of a business loan, you may be tempted to approach several lenders to increase your chances of approval. But you need to understand that it can actually have negative consequences. In case you apply to multiple lenders, it could be seen as a sign of financial distress, which could damage your credit score and increase your perceived risk as a borrower.

Full Disclosure Of Cash Flows

It is advisable to disclose your cash flows, financial statements, and other relevant details to the lender as this will help the lender assess your creditworthiness and make an informed decision about your loan application.

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